The most impressive thing about Competition Commissioner Margrethe Vestager’s Apple fine is not the billions of euros but the optimism. The idea that the law should apply also to those companies that have grown used to being above it. Global companies employ lots of people, and their investments can mean much for the local economy, so governments try to make sweet deals to attract them. There is a mismatch, as a global actor can play out different local governments against one another. Nothing new here; this has often been the case in the history of transnational businesses. But today’s digital behemoths add an extra layer to this cake. Not only can they play the “freedom-to-do-business” card, but also the “freedom-of-information” card. Plus, as “innovation” looks to have become an end unto itself, don’t be surprised if that’s the next line of defence. Vestager’s move may be questioned on many grounds (international tax law, member state tax sovereignty, investment protection), but no one can deny that it shows great faith in what government institutions can accomplish. However, there is no shortage of EU policy going the other direction; the Digital Single Market vision may look like an extension of that fundamental European idea of a single market, but to “unlock digital opportunities” is also a keyword for “letting Silicon Valley skyscrapers disrupt European businesses.” No, I’m not protectionist; I just think free trade needs a set of rules. Vestager is trying to bring some to bear, but I’m afraid the Google-dragon in Netopia’s cartoon is also an Apple-dragon.

Interestingly, the San Francisco Chronicle commented:

Only Apple could successfully avoid billions of dollars in taxes over a decade and still win sympathy

Even on its home turf, it seems the sympathy could be with Apple’s nemesis.

When parts of the Turkish military attempted a coup d’etat on president Erdogan last week, the president reacted by asking the people to take to the streets and “defend democracy”. He communicated this message via minarets of mosques across the country, but also via mass text messages through the mobile phone carrier Turkcell. President Erdogan was elected through democratic vote, but has been criticized of expanding the presidential power by attempting to change the constitution. His regime cracked down violently on the protests in Istanbul’s Gezi park in 2013 and he has restricted internet access in Turkey, including demanding social media services to censor content. Turkcell is not wholly-owned by the Turkish state, one of its overseas investors is Swedish-Finnish telecom incumbent Telia Sonera. When asked about the president-mandated text messages, Telia Sonera CEO Johan Dennelind said he had no influence over the operations of Turkcell, his company being only a minority stake-holder (in fairness, Dennelind has announced plans to sell Telia Sonera’s shares in Turkcell and a number of Central-Asian telecom operators).

Internet activists, telecom lobbyists and other digital naïvists love to talk about how the internet spreads democracy. When Western governments want intermediaries like telecoms to act against crime on their networks, the rebuttal is immediate: that would be like in China! Some even say “the internet is a human right”, whatever that means. With this in mind, how can we interpret the recent events in Turkey? Was the presidential text-message campaign a natural part of how the internet spreads democracy? Or was it an illegitimate power grab by a despot who has by far overstepped his democratic mandate? Is political mass communication like this compatible with the “mere conduit”-doctrine, where intermediaries are considered to be only infrastructure with no influence over content? What do you think, dear reader?

When some say things like “we can’t have rules on the internet, that would be like China/Belarus/North Korea/insert despotic regime of choice”, they conveniently forget that these authoritarian regimes censor the internet anyway. It’s not like the attempts by Western democracies to uphold rule of law and privacy through government institutions inspired the dictators, they would do it regardless (oftentimes with the help of Western technology companies). The difference is not that some countries regulate the internet and some not, the difference is that some respect fundamental rights and provide legal certainty and some don’t. That difference goes much deeper than digital communications. I love the internet, it makes it possible for me to post this blog so you can read it (and thanks for reading it, by the way!). But it’s not going to bring democracy on its own and it’s not some fragile thing that is automatically wrecked by rules.

On Thursday, EU Competition Commissioner Margrethe Vestager brought her third case against Google, this time against its advertising business. Netopia can only agree with the Commissioner’s conclusions that the internet giant abuses its dominant position in this and many other areas. Netopia also wishes Vestager success in her court cases. Regrettably, it will probably do little to make competition work better online, partly because of how the internet works and partly because of the Commission’s digital policies.

The online markets are different from traditional markets mainly because of the lack of friction. Where in other places, there are necessary physical restrictions to purchases, deliveries, quantities etc, online most of such restrictions are artificial rather than built in. You can only buy as many books as you can carry, but you can carry unlimited amounts of e-books, to take one example. This in combination with the so-called network effects – also known as Metcalfe’s law – that say that the value of the network is greater the more connections it has, and as a consequence the penalty for staying outside the network increases. Think of social media, if all your friends are on Facebook, you pay a social price if you stay out: fewer invitations, lost on inside jokes, out of tune with the gossip etc. This creates the winner-takes-all economics of the online markets. It makes a lot of sense to have one place for ad listings online. It makes little sense to have more than one. Runner-ups will have to focus on special niches or find a way to deliver a much better service. Competition between similar alternatives which is the rule in traditional markets, is the exception in online markets.

Once you are the top dog in an online market, there is nothing to stop you from making the most of that position which in most cases is the same as abuse of dominant position. Only a business run by a saint would take enough care to invite the competition. The challenge for competition law online then is to cope “downstream” with these effects that are consequences of how the markets are set up in the first place. Vestager’s Commissioner colleagues are not really helping to cope with this problem. One answer could be to think of “upstream” policies that limit the impact of the winner-takes-all-system, but in fact most of the current digital policy proposals go in the opposite direction. That’s right: Digital Single Market, Privacy Shield, portability of services, even net neutrality all serve to take away friction and thus support the niche monopolists. Add that the “follow-the-money”-principle on copyright infringement that European Commission has set out (which is a really good idea on paper – focusing on improving the system and going after commercial-scale infringers rather than consumer pirates) fails to include responsibilities for those who have the biggest stakes and the biggest powers – internet platforms and access providers – in the list of payment services, advertisers and hosting providers that should be required to take action, and the fellow Commissioners are not giving any upstream support to Vestager’s bold campaign. In order to get a better competitive online landscape, the European institutions are likely the only government function in the world that could have a tangible influence, but that would require a political vision beyond “de-regulate and there will be growth”. In want of that, we are left to give Vestager our sympathy and moral support, at least for the time being.

I have taken Uber rides on three different continents. Frequent Netopia readers know I am critical of the company and its policies, but I like to think of those rides as field experiments. Each time, I was a guest on somebody else’s Uber app because the interface on the one I have on my Windows phone does not let me accept “surge pricing,” and every time I want to ride, there seems to be a surge. (The Windows phone is a different story; let me just say it’s the least of all evils in smart phones.)

In the United States, the Uber drivers I’ve talked to are middle-class educated persons who drive for Uber as a side job or between jobs. When I ask them about things like workers’ rights or Uber putting cabbies out of a job, they’re not concerned; they don’t think about Uber as a long-term commitment. Instead, they talk about how Uber takes cars off the road (less congestion) and takes drunk drivers off the road. The cars are new, nice, and clean, in contrast to most taxis I’ve ever ridden in in US cities.

In China, Uber drivers tend to be a younger generation. I have not been able to figure out if they work for themselves or for some company that provides them with cars, etc. The contrast to the taxis is similar to the US.

In Europe, most cities have better regular taxi systems than in the US and China. Here, Uber’s appeal is really the low cost. Many of the Uber drivers are recent immigrants who may lack the formal skills to become “real” taxi drivers. A series of court cases in my native Sweden found their rights were abused by Uber.

My first observation is that Uber is different in different places. The service is basically the same, but the local circumstances change it. That may sound like a shallow insight, but it’s actually profound. When people say things like “you can’t stop new technology,” they’re describing technology as an outside force. But if it adjusts to local conditions, it’s not an outside force at all. Also, Uber is more about business than technology, but more on that later. And Uber, like self-driving cars, is a very American idea that is born in a country that is built around the car. The public transport systems in most countries of the world are better developed than in the US (with some exceptions like New York and San Francisco). Riding bikes or scooters is not an option in the suburban sprawl of most American cities. So not only does the service change with the local conditions, it’s conception is a consequence of local conditions.

My second observation is about the sharing economy. That term can mean a lot of different things, but one idea could be that the sharing economy is about individuals allowing other individuals to access unused capacity and maybe pay a little bit for that. Think about how a neighbourhood can share power tools or maybe a car pool. Businesses like Uber are not so much a sharing economy as an on-demand business or “gig economy” from the workers’ perspective. Like the farm workers that line up in the village square each morning to be picked up for the day’s work if the farm owners need them. If not, they make no money. If you’re the middle-class American Uber driver, you can think of yourself as working for your own business. If you’re a recent immigrant, your situation is more like the day labourer’s. So in that perspective, the sharing economy is more of a buzzword than an accurate description of Uber. I’ve been to conferences where people involved in the true grass-roots sharing economy express their frustration over how Silicon Valley (ab)uses the phrase.

Now, the business. In a recent op-ed, Uber’s Swedish manager Alok Alström announced that Uber will now share data with the Swedish tax authority, following criticism from other taxi companies that Uber does not follow the same tax rules as the competition. It’s revealing that Uber would make a point of sharing data with the tax authority; for every other company, that is the norm. It is also telling that it took several court cases for Uber to cancel it’s illegal  UberPop service. Taxis are strictly regulated with special license plates, medallions, licensed drivers, meters, price caps, rights for riders, specific colours or designs, clear brand names, insurances, pension payments, tax regulation, etc. Uber’s advocates like to describe this as a bureaucracy full of nepotism, corruption, and abuse, but while that may have some merit, it’s not intrinsic to the system but a collateral effect. Instead, the image of a corrupt taxi system justifies for Uber to by-pass many of the rules that the competition has to abide by. Only in that perspective does it make sense for one of its managers to announce that Uber will from now on follow a rule rather than ignore it. By broadcasting itself as a technology company, Uber can pull the same trick as Google and many others, claiming its only connecting users (drivers and passengers in this case) with no responsibility for their actions. But Uber’s success is more about clever business than innovative technology. In the same op-ed, Alström claims that Uber’s algorithms are more effective in matching passengers and drivers than the classic taxi companies. Thus Uber drivers have paying passengers in their car more often, and that’s how they can be cheaper. I don’t dispute that Uber’s algorithms are effective, but that’s only part of the story. The fact that it ignores most of the administrative burdens other companies deal with is a gigantic cost-saving. But perhaps more importantly, as author Tom Slee has shown, with its generous supply of risk capital, Uber can operate at a loss. That’s right, what is the purpose of a normal company, making money, is at best a distant second for Uber. It wants scale, and its investors want scale. Revenue comes later, after Uber is the top dog in as many markets as possible. Not only geographical markets, but also expanding beyond passenger rides to all kinds of transports and also financial services (leasing vehicles and selling insurance to drivers). The level playing field is lacking, not only when it comes to following the rules but more importantly on the fundamentals of business. How do you compete with somebody who can take almost infinite losses to put you out of business?

A fresh study by consultancy Faber Novel Innovate calls Uber a “transportation virus.”. That sounds like a disease, more than a gift to mankind. All this is great if you’re an early investor. For the rest of us, we become the hosts of the virus. I don’t worry about riders taking cheap trips; I worry about what comes after Uber becomes the global dominant player in transportation. It’s bad enough that single companies control things like our social networks and the world’s data. Bring those effects into the physical world, and monopoly will have a whole new meaning.

“Why are there no successful European internet companies?” I think that you have heard this question many times, just as I have. What is the answer? Don’t we have enough innovation? Perhaps not enough disruption? Is it the lack of a single language for consumer market? Shortage of IT-skills? Not smart enough entrepreneurs? Too much focus on the consumers? Too little? Actually, it’s none of the above.

In 1958 the US Congress passed a bill called the Small Business Investment Act. It was an effort to give access to long-term investment capital for entrepreneurs, but of course as this was during the Cold War, the idea was also to beat the Soviets, hoping spur technological advances that could compete. The Act provided generous loan guarantees to investors and made it possible to set up the venture capital funds that would kick-start the tech companies of Silicon Valley in the next decades. The point has been made many times that the research that created the internet was conducted by the government, but it wasn’t only the innovation, also the investment was a government initiative. That’s right, you may have thought that the VC firms of Sand Hill Road built their fortunes on money from rich individuals or perhaps pension funds, but it was the tax money that set the ball rolling. And it’s the VC investment that sets Silicon Valley apart from Europe. The reason there are fewer successful European internet companies is simple: there is not as much risk capital!

How much tax money? you ask. A lot! If Wikipedia is to be trusted, the 1958 act gave venture capital firms “access to federal funds which could be leveraged at a ratio of up to 4:1 against privately raised investment funds”. Four tax dollars for every private! If the aim was to create technological advances that could outcompete the Soviets, it’s fair to say that it worked. The Cold War era policy-makers probably did not expect the added benefit of global domination of digital markets.

Of course the European Union is no stranger to investment support. On June 30^th it announced that the European Investment Fund will invest €121 Million in guarantees to support the cultural and creative sectors (so not tech in this case, but perhaps creativity is a better bet for Europe after all), aiming to create €600M worth of bank loans. Good job, EU Commission, except you got the ratio backwards. The Silicon Valley success factor was 4:1 tax/private, this is 1:4.

Is it too late to copy the Small Business Investment Act? You tell me, 58 years after… Perhaps the right question is not about the internet companies, but how Europe can get a head start on the next wave (my bet is creative content, what’s yours?). But at least now you know why there are no successful European internet companies. As is so often the case, it’s about the money. And in this particular case, the tax money.

This is Netopia’s newsletter on July 4th.

Netopia started six years ago in Swedish. (You can still check out the original site here: www.netopia.se) While it was a great project in many ways, it was also frustrating to talk about a global issue – digitalization – in a local language. Most of the best minds wrote in English and I could not interact with them in Swedish. Also, the question I was investigating – what should be the roles of democratic institutions online? – suggested that the answer to a global issue was not local. So in 2013 I moved Netopia to Brussels and switched to English. It was a great move, now Netopia can be a part of one of the most interesting and challenging policy topics today, using the same language as all others. But also, the European Union is really the only feasible government structure that has the chance to wield any significant influence online. The UN of course, but it lacks the proper institutions of the EU and has the problem of the democracies being outnumbered. The US government of course, but there is a problem of US-dominance of the internet as is. Europe has a big enough consumer market to not be ignored by the online businesses and strong enough institutions to regulate the internet, at least that is my bet.

Sure, but what does that have to do with Britain’s referendum? you ask. Because digitalization is only one of the big issues today. Climate change, migration, economy, peace, hunger, energy… make a list of the world’s challenges and find that all of them are global. So how can nationalism be the answer? We need better institutions, more democratic institutions and more global institutions. Nationalism is the wrong direction. Sure, nationalism can be fun, I enjoy the Euro Football just as much as the next person (well, maybe not today as Sweden was eliminated last night), but while the teams are national, the point of the championship is to be transnational. The workers’ movement knew this a century ago, that’s why their song is called “The Internationale”. And in case you’re a liberal, you know that a truly free world knows no borders. Nationalism belongs to the 19^th century. The answers to tomorrow’s issues are global. The British voters can help today.

On Monday night, Netopia.eu was the victim of a DDoS-attack which took down the site for about ten hours. We have no idea of the motive for this action, nor who orchestrated it. Perhaps it was part of some activity that targeted a large number of websites, perhaps it was specific to Netopia. Whichever the case, if you read this, dear hacker: If you disagree with Netopia’s opinions, let us know. If you want to express your disagreement, I promise to publish it, whether it’s an opinion piece or you prefer to be interviewed, I will run it here on this website. I think you will agree that is a much better way to disagree than to make our website inaccessible. After all, it’s coming back up after a few hours, but if you put your views into words they can stay online forever.